Two Court of Appeals Arguments on Sound Recording Music Royalty Rates – And the Real Question is Whether the Copyright Royalty Board is Constitutional

In the last 5 days, the US Court of Appeals in Washington, DC has held two oral arguments on appeals from decisions of the Copyright Royalty Board – one from the Board’s decision on Internet Radio Royalties and the other on the royalties applicable to satellite radio. The decisions were different in that, in the Internet Radio decision, the appellants (including the group known as the "Small Commercial Webcasters" that I represented in the case) challenged the Board’s decision, arguing that the rates that were arrived at were too high. In contrast, at the second argument, SoundExchange was the appellant, arguing that the Board’s decision set royalties for satellite radio that were too low. But, in both arguments, an overriding question was whether the Judges on the CRB were constitutionally appointed and thus whether any decisions of the Board had any validity. While the question was expected and specifically raised in the webcasting proceeding (see our post here when that issue was first raised), the discussion at the satellite radio argument was somewhat of a surprise, as the issue had not been raised by either party, and the Appeals Court judges were not even the same judges who had heard the Internet radio argument. Yet one of the Judges raised the issue, unprompted by any party, by asking if the Copyright Royalty Judges were properly appointed and indirectly asking if their decision would have any validity if the constitutional issue was found to exist.

Will the Court decide the constitutionality issue, and what would it mean? No one knows for sure. One of the issues raised by the Court in the Internet radio case was whether the issue had been raised in a timely fashion. In both cases, the possibility of requiring additional briefing on the issue was also raised by the Court, though no such briefing has been ordered – yet. Even if the Court was to find that the Board was not properly appointed, there are questions as to whether the existing decisions should nevertheless be allowed to stand, while blocking new decisions until a new appointment scheme is found. Alternatively, Congress might have to intervene to resolve the whole issue and, if it was to do that, would Congress simply ratify the current decision, or would there be new considerations that would affect any Congressional resolution? The issue raises many questions, and we’ll just have to wait to see what the resolution will be.

In the webcasting case, there were also numerous arguments about the appropriateness of the decision on the rates. The large webcasters argued that the Board used flawed reasoning to arrive at the rates that were determined, the Small Commercial webcasters contended that the Board should have adopted a percentage of revenue royalty rate as they would otherwise be put out of business, while noncommercial webcasters submitted that a flat fee was the appropriate royalty. SoundExchange and the Department of Justice lawyers who represent the CRB of course disputed the contentions. Broadcasters and NPR were absent from the appeal given their recent settlements with SoundExchange on Internet radio royalties (see our posts here and here).

The satellite radio argument was in many ways the opposite of the Internet radio case, with SoundExchange contending that the rates that were arrived at by the Board should have been higher, while the Department of Justice defended the CRB decision, and Sirius XM arguing in support of the DoJ. One of the interesting aspects of this case was that the argument did not focus on what a willing buyer and a willing seller would agree was the proper price of music (the argument in the Internet radio case), but instead whether the CRB adjusted that rate too greatly to protect the economic viability of the satellite radio industry. As we’ve written before, the satellite radio case was judged by the 801(b) standard of the Copyright Act, which considers not only the perceived "value" of the music, but also the impact that any royalty would have on the service paying that royalty and on the public’s interest in receiving the music. Internet radio, in contrast, while paying for the same right to publicly perform the sound recording, is judged by a different standard – the willing buyer, willing seller standard that looks only at the economic value of the music.

The decision of the Court in these cases may be many months away. Many interested parties may be looking at that decision – not only the parties to these cases, but also all others subject to the CRB’s jurisdiction (and those who may be subject to it – like broadcasters should a performance royalty on over-the-air broadcasts be adopted). Stay tuned….

David Oxenford represents broadcasting and digital media companies in connection with regulatory, transactional and intellectual property issues. He has represented broadcasters and webcasters before the…

David Oxenford represents broadcasting and digital media companies in connection with regulatory, transactional and intellectual property issues. He has represented broadcasters and webcasters before the Federal Communications Commission, the Copyright Royalty Board, courts and other government agencies for over 30 years.

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David is a partner at the law firm of Wilkinson Barker Knauer LLP, practicing out of its Washington, DC office. He has represented broadcasters for over 30 years on a wide array of matters from the negotiation and structuring of station purchase and sale agreements to regulatory matters. His regulatory expertise includes all areas of broadcast law including the FCC’s multiple ownership limitations, the political broadcasting rules, EEO policy, advertising issues, and other programming matters and FCC technical rules.